Do You Still Need Life Insurance After You Retire?

Working for a company that provides comprehensive benefits, such as health insurance, dental coverage and employer-sponsored life insurance, is one of the major advantages of full-time employment. But what happens to these benefits when you retire? While most people prioritize health insurance transitions, employer-provided life insurance is often overlooked.

What is employer-provided life insurance?

Employer-provided life insurance is a benefit many companies offer as part of their employee compensation package. It typically provides a death benefit to your beneficiaries if you pass away while you are still employed. Some employers pay the full premium as a benefit, while others may offer additional coverage that you can purchase at group rates. Although employer-provided life insurance can be cost-effective for older employees or those with health issues, who might face higher premiums on the individual market, younger and healthier individuals may find that purchasing their own policies offers more affordable rates and greater flexibility.

What happens to your policy when you retire?

Most of the time, employer-provided life insurance coverage stops on your last day of employment or soon after. They're designed primarily for active employees. Some employers may offer options to continue coverage, such as the ability to convert your group policy to an individual policy. Other employers may offer portability, allowing you to take the coverage with you and pay for it yourself. It's helpful to review your employee benefits handbook or speak with your HR department before your retirement date to understand exactly what options are available to you.

Under the federal law known as ERISA (Employer Retirement Security Act), employers are required to inform employees of their right to continue life insurance coverage upon termination of employment. This includes the ability to convert to an individual policy. Your employer should provide this information in your benefits materials or through HR. It's important to review it before your retirement date, as conversion and portability windows are often limited, so if you miss the deadline, you may lose the chance to keep the coverage altogether.

Common options after retirement

Option 1: Convert to an individual policy

Many employer-provided life insurance policies include a conversion privilege, which allows you to convert your group coverage to an individual policy without undergoing a medical exam. This option can be valuable if your health has changed since you first received coverage, as you guarantee acceptance regardless of your current health status.

Some policies may also offer "portability," which allows you to keep your existing coverage by paying premiums directly to the insurer, typically at a lower cost than conversion. According to recent data, most conversion periods range from 31 to 60 days, making timing critical for maintaining continuous coverage.²

While conversion policies are often whole life insurance with cash value components, they usually cost more than term life policies you might purchase independently. However, the guaranteed acceptance makes this option worthwhile for those with health considerations.

Option 2: Purchase a new individual policy

If you're in good health, purchasing a new individual life insurance policy might provide better coverage at a lower cost than converting your employer policy. You'll need to undergo the underwriting process, which includes a medical exam and a health questionnaire, but this may lead to more favorable terms.

Individual policies offer several advantages: you can choose the coverage amount that fits your needs, select from various policy types (term, whole, or universal life), and the coverage won't be tied to your employment status. Keep in mind that approval isn't guaranteed, and premiums will be based on your current age and health status, which may be higher than what you paid for group coverage.

Option 3: Go without life insurance

Certain retirees may opt to discontinue life insurance coverage entirely, especially if they have sufficient assets to support their beneficiaries or if their financial obligations have reduced substantially. For example, if your mortgage has been fully paid off or the children are financially self-sufficient, you may opt to forgo the insurance.

However, this decision requires careful consideration of your family's financial situation and potential final expenses, taxes, and estate planning needs that life insurance could help address. If you no longer have coverage and later develop health issues, you may find yourself unable to be approved for life insurance, regardless of price.

How to decide what's right for you

Your decision-making approach depends on your financial situation and future needs. Determine if life insurance is necessary in retirement by considering your debts, your family's financial security, estate planning, and final expenses.

If you determine that continued coverage is necessary, compare the costs and benefits of conversion with those of purchasing a new policy. Request quotes for individual coverage while you're still employed and in good health, as this gives you time to make an informed decision without pressure.

Why you might still need life insurance in retirement

Many permanent life insurance policies also offer valuable living benefits. It can help address unexpected health challenges and long-term care needs. For example, accelerated death benefits allow you to access a portion of your policy's death benefit while you're still alive if you're diagnosed with a qualifying chronic, critical, or terminal illness.

Chronic illness riders specifically address situations where you cannot perform at least two activities of daily living (such as bathing, dressing, eating, toileting, transferring/mobility and continence) or have severe cognitive impairment. This benefit can help bridge the gap when Medicare and other insurance don't fully cover long-term care costs. For example, the national average for a semiprivate room in a nursing home is over $100,000 per year.¹

These living benefits essentially allow your life insurance policy to serve dual purposes: helping protect your beneficiaries after your death and providing a financial safety net for health-related expenses during your lifetime. While accessing these benefits will reduce the eventual death benefit paid to your beneficiaries, they can be invaluable when facing serious health challenges in retirement. So, if your spouse depends on your pension or Social Security benefits that will end with your death, life insurance can help replace this lost income.

Final expenses, such as funeral costs, medical bills and estate settlement fees, are also considerations for your survivors. Life insurance provides immediate funds to handle these expenses, allowing your family to focus on what matters most during a difficult time.

The role of Mutual of Omaha

For sound life insurance decisions during your retirement transition, seek financial guidance to bring you peace of mind. Consider insurance companies with strong financial ratings and long histories of providing stability and reliability, which are important for long-term coverage. Whether you're converting employer coverage or purchasing a new policy, choosing a reputable insurer ensures your beneficiaries will receive the promised benefits when needed. Research the financial strength ratings and customer service records of potential insurers before making your decision.

It may be helpful for you to create a retirement timeline. Starting this process with a Mutual of Omaha agent well before your retirement date allows sufficient time to explore all available options and, if desired, ensure continuous coverage. It is important to remember that life insurance needs can change upon retirement, and the most suitable solution depends on your circumstances.